Patagonia is known for its sustainable climbing apparel, but the US-based company is also scaling new heights in corporate leadership by deciding to channel all future profits to environmentalism. As corporate philanthropy becomes increasingly mainstream, can Patagonia’s innovative approach serve as a model for other socially conscious corporations?
In 2022, Patagonia made corporate headlines by ‘selling itself’: setting up the Patagonia Purpose trust to control the business but transferring the equity and non-voting stock to an environmental non-profit, the Holdfast Collective.
Ryan Gellert, CEO of Patagonia says the new structure was developed to “both protect the purpose of the business and immediately and perpetually release more funding to fight the environmental crisis”.
At a time when stakeholders are placing a premium on climate action, Patagonia’s move has renewed public attention to the Corporate Social Responsibility (CSR) efforts and business models of different companies.
Headed by environmentalist founder Yvon Chouinard, Patagonia has a long history of sustainable activism. In 1985, the company levied a 1% ‘earth tax’ on itself to financially support global environment non-profits. In 2005, it kickstarted the Common Threads Recycling Program to reduce overproduction.
Keeping these actions in mind, Patagonia’s decision, while it came out of the blue, was not out of character. Experts say this and the very nature of its ownership structure made it possible for the company to commit itself wholeheartedly towards climate action.
“Patagonia was able to create this arrangement because it was a family business and the family could independently make the decision – any other business owned by a sole proprietor, family or private owners could do something similar if they wished,” says Professor Carl Rhodes, Dean of UTS Business School.
“For large public corporations owned by shareholders, the model would not really be replicable unless all of the shareholders were prepared to give away their stock holdings for free, which is beyond any real likelihood,” he explains.
In 2021, 90% of the S&P 500 published CSR reports (up from 20% in 2011), while corporations invested USD 26 million on average into the community, a 20% rise since 2012. But, given corporations are set up to make profits, the commitment to philanthropy is often at risk of being overridden. So how then can they go about embedding philanthropic actions into their business models?
One option would be to set up corporate-backed foundations, allowing for more independent assessments of causes to champion.
“As foundations usually have external boards of directors, they are more stable and accountable. This structure avoids conflict of interest when it comes to investment decisions, although corporations still control how much money the foundation gets,” says Femida Handy, Professor of Non-profit Studies at the School of Social Policy and Practice at the University of Pennsylvania.
From Sanofi Foundation to The Coca-Cola Foundation, large corporate foundations are not new, and neither are foundation-owned companies. Some of the largest companies in Europe, such as IKEA, Carlsberg, and Bosch, are majority-owned by foundations, which can enhance economic stewardship and social giving.
However, changing ownership models is not a viable option for most corporations.
From adopting a ‘triple bottom line’ accounting for the financial, social, and environmental impacts of a business to implementing ‘one-to-one’ business models where each sale is matched by a donation, experts say there are many ways for corporations to up their CSR and philanthropical activities.
For Handy, the key is treating philanthropy as an act of mutual interest. “Companies must make a profit to give back to society, so they should be strategic about giving to good causes. For example, matching employees' charitable donations 1:1 is good for society, good for employee morale, good for retention and takes company executives out of the decision-making process. It’s a win-win.”
The more traditional method is channelling profits to a charitable arm or simply paying higher corporate taxes and making money for its shareholders. “From the stockholder perspective, I want the corporation to make money so that I can spend those profits on my own philanthropy,” says Handy. “I don’t need the company to decide for me.”
CSR decisions, in large corporations, are often left to the local companies/countries as they have the local knowledge, are the closest to societal issues, and can decide what works for their own communities.
When it comes to corporate philanthropy, it's not a question of how much you give, but how you give. As long as corporations ‘do good’ not just to ‘look good,’ a balance can be found.